Analysis of the 2004-05 Budget Bill

Legislative Analyst's Office
February 2004

The Department of Motor Vehicles (DMV) is responsible for protecting the
public interest in vehicle ownership by registering vehicles, and for promoting
public safety on California's streets and highways by issuing and renewing
driver licenses. Additionally, the department licenses and regulates
vehicle-related businesses such as automobile dealers and driver training
schools, and also collects certain fees and tax revenues for state and local
agencies. The DMV operates 167 field offices statewide, as well as nine
telephone service centers, a headquarters, and several driver safety and
investigations offices.

The budget proposes total expenditures of $705 million for support of
DMV in 2004-05. This is a reduction of $14 million, or 2 percent,
below estimated current-year expenditures. The reduction includes primarily
adjustments for one-time administration expenditures in the current year to
issue vehicle license fee refunds to certain vehicle owners.

About $382 million (54 percent) of the department's total support
will come from the Motor Vehicle Account (MVA) and $269 million
(38 percent) from the Motor Vehicle License Fee Account. The remaining
support will be funded primarily from the State Highway Account and
reimbursements.

The staffing level at the Department of Motor Vehicles (DMV) has
declined by about 1,000 positions in recent years due primarily to hiring
freezes and position abolishments. Workload levels, meanwhile, have grown
steadily. As a result, levels of service provided to the motoring public have
declined significantly. We recommend that the Legislature reexamine the level
of service to be provided by DMV. If the Legislature determines that current
wait times and overall service levels are unacceptable, we recommend the
Legislature restore some of the abolished positions particularly in the
department's field offices and telephone centers.

The DMV's various responsibilities require it to engage in a significant
amount of contact with the public. The department is charged with licensing
23 million drivers and registering 27 million vehicles, as well as
issuing identification cards, transferring vehicle ownership, and providing
numerous other services. Each year, over 30 million people are served in
DMV's field offices, with the department performing millions of additional
transactions for customers by mail, over the phone, and on-line.

Staffing Level Down, Workload Up . . . The DMV's staffing
level has declined in recent years as a result of multiple rounds of cutbacks
from hiring freezes and position abolishments, as well as the need to hold
positions vacant to meet salary savings requirements. As Figure 1 (see
next page) shows, after peaking at about 8,900 personnel-years (PYs) in
2001-02, staffing will drop to about 7,900 PYs in the budget year. Most of the
reduction is pursuant to Control Section 4.10 and Executive Order D-71-03,
which together eliminated about 600 vacant positions from DMV in the current
year. These eliminated positions affect all functions of the department,
including field operations, the telephone service centers, departmental
divisions such as the investigations unit, and headquarters administration. The
hardest hit is the field operations division, which suffered the majority of
the cutbacks with over 300 positions being eliminated.

As a result of these reductions, there are an average of 12 percent
fewer customer service "windows" open at any given time in the field
offices today than in 2000-01. In addition, the number of Motor Vehicle Field
Representatives (MVFRs) working in DMV's telephone service centers has
decreased by about 40 positions (or about 8 percent).

While the staffing level has declined, DMV's workload has increased. For
instance, since 2000-01, the total number of drivers licensed by DMV has
increased by over 1 million (about 5 percent), to 23 million. The
number of vehicles registered has also increased annually and is expected to
increase further, by about half a million (or 2 percent) in the budget
year. Overall, the department now performs about 44 million transactions a
year, about 2 million more than four years ago.

. . . and Service Levels Deteriorating Rapidly. This
combination of staffing cutbacks and workload growth has impacted significantly
the level of service provided by DMV to the public. As Figure 1 shows,
average wait times for walk-in customers have increased dramatically with the
staffing decline. Currently, the average wait time at DMV's field of fices
is about 60 minutes. This time does not include the initial period when a
walk-in customer stands in line to obtain a "queuing number," which
can add several more minutes to the overall wait time. At some large-volume
urban offices, the wait time can be significantly higher. The DMV reports that
at offices such as San Mateo, Glendale, and Fullerton, maximum wait
times are up to four hours. Absent corrective actions in the budget year, DMV
projects that average wait times statewide will increase to about 80 minutes.
These wait times are significantly longer than the statutory intent that
customers not be required to wait in line at a field office for more than 30
minutes.

Customers wishing to avoid long lines at DMV have the option of making an
appointment (by phone or on-line) before visiting a field office. The DMV's
scheduling system allows customers to make an appointment up to 30 days in
advance. Customers using the appointment service are usually served within ten
minutes of their scheduled appointment time. However, due to a high demand for
appointments and reduced staffing to accommodate that demand, customers
currently must wait an average of two to three weeks to schedule an appointment
to register their vehicle or apply for a driver license. Average wait times for
drive test appointments are nearly a month long. At offices in San
Francisco, Los Angeles, and San Diego, some customers are unable to schedule any
type of appointment because there are no available slots within the 30-day
scheduling period. The difficulty in setting an appointment as well as the long
wait for appointments often provide customers with no options but to visit a
field office as a walk-in customer.

Wait times apply to customers trying to access DMV by phone, as well.
Customers can use DMV's toll free number to make an appointment or inquiry,
request forms, and perform certain transactions such as vehicle registration
renewals. Currently, calls by customers to the telephone service centers are
placed on hold for an average of about four minutes before being answered by an
MVFR. This is almost double the average wait time in 2002-03. Recently, it has
become difficult for customers to even get through to DMV's phone system:
reduced staffing levels at the telephone service centers have caused some
customers to encounter a "busy" signal, sometimes for hours, when dialing
the number. As a result, many of these customers must also visit their local
field office as a walk-in, which further adds to congestion and wait times.

Recommend Restoration of Select Abolished Positions Depending on
Legislature's Assessment of Service Levels. In light of the recent
cutbacks, we recommend that the Legislature reexamine the level of service to
be provided by DMV. To some extent, DMV can improve services through
administrative efficiencies and actions to encourage a reduction in field
office visits by customers. (In the following section, we recommend several
changes to the driver licensing program to that end.) However, given the
magnitude of DMV's workload, it is unlikely that administrative actions alone
will reduce wait times to any significant degree. Rather, additional staffing
will be needed. Thus, if the Legislature determines that the present levels of
service provided by DMV, as reflected in wait times, are unacceptable, we
recommend the Legislature restore some of the abolished positions.

In our view, the highest staffing priority for the department is in the
field operations division and the telephone service centers, which together
lost over 300 positions in the current year pursuant to Control Section 4.10.
By adding primarily MVFRs, DMV would be able to serve more customers by phone,
and more workstations and appointment slots could be made available for
customers in the field offices—thereby reducing wait times. According to DMV,
an additional 100 field office staff would reduce wait times on average by
about five minutes. We estimate that restoring 100 MVFR positions would cost
about $5 million annually. Funding would come largely from the MVA.
Because of the substantial balance (over $300 million) the MVA is
projected to have by year end, an increase of this magnitude would not have a
significant negative impact on the account condition.

If the Legislature chooses to restore some positions to the department, we
recommend that it also adopt budget bill language to exempt these positions
from the hiring freeze. Otherwise, the department would not be able to fill
these positions.

State law requires motorists who reside in California to hold a valid driver
license in order to drive on public streets and highways. The DMV is
responsible for issuing original driver licenses to qualified applicants, as
well as renewing expired licenses. Annually, the DMV issues about 850,000
(original) noncommercial driver licenses and renews about 4.7 million
noncommercial driver licenses. The fee for original and renewal driver licenses
is $24, and both are valid for five years. Department staffing for driver
license services totals approximately 2,700 positions, about 400 positions
(13 percent) less than levels in 2000-01.

The MVA is the sole source of funding for DMV's driver licensing program.
The MVA derives most of its revenue from driver license, identification card,
and vehicle registration fees.

The Department of Motor Vehicles' process of issuing new driver
licenses is labor-intensive and costly. Our review finds opportunities to
improve the process in terms of customer service, driver safety, and cost
effectiveness. We recommend the department report at budget hearings on the
viability of making several administrative changes to the written test. We
further recommend the enactment of legislation to (1) increase the existing fee
on drive test retakes and (2) impose a new fee on drive test appointment
"no-shows." Lastly, we recommend legislation to create a pilot
project to evaluate the feasibility and cost implications of out-sourcing drive
tests.

Issuance of Driver Licenses Is Lengthy, Labor-Intensive Process. The
current process to issue an original driver license requires DMV staff to
perform a number of functions with direct contact with license applicants.
Unlike the driver license renewal process, most of which can be done by mail,
every new driver license applicant must visit a DMV field office at least
twice. In many cases, applicants visit a field office multiple times.

Figure 2 summarizes the key steps involved in the
issuance of a driver license. An initial visit is required in order for the
customer to be issued a learner permit. For that visit, the applicant may
choose either to make an appointment (by phone or on-line), or to walk in
without an appointment and be served on a "first-come, first-served"
basis. Wait times for appointments currently vary from a few days (primarily in
rural areas) to over a month (primarily in urban areas).

At the field office's "check in" station, an MVFR provides
instructions to the customer on completing the driver license application form.
The applicant fills out the form and waits for further assistance. Currently,
walk-in customers must wait an average of about one hour; with wait times
ranging up to three or four hours at several high-volume urban field offices
(for example, Glendale and Escondido). A second MVFR then enters the
information from the application form into DMV's computer database. As required
by law, the staff member reviews the applicant's age, identity, and legal
status documentation. The authenticity of this documentation is also verified
by a supervisor. After collecting the fee from the applicant, the MVFR
administers a vision test.

Next, the applicant moves to the photo station, where another MVFR takes the
applicant's thumbprint and picture. Afterwards, the applicant is sent to
another section of the field office, where a fourth MVFR administers the
written test. The test is corrected by hand. If the applicant passes, the MVFR
issues a learner permit so that the applicant can practice for the
behind-the-wheel drive (road) test.

During the period between the written and drive test, DMV staff at
headquarters electronically verifies the citizenship and legal immigration
status of driver license applicants with the Social Security Administration
and, if applicable, the Immigration and Naturalization Service. Cases of
suspected fraud are investigated by department staff.

The applicant must call to make an appointment in order to take a drive
test. Currently, applicants have to wait about a month for a drive test
appointment at many field offices. If the applicant fails the 20-minute drive
test, he/she has two more chances to retake the test. When the applicant
passes, an MVFR enters the applicant's score into the computer system and
issues an interim license. Staff at headquarters completes the processing of
the application, and mails a photo license to the applicant within four to six
weeks.

High Costs to Issue New Driver Licenses. This labor-intensive
process results in significant costs to the department. In fact, DMV estimates
that it costs about $67 in direct costs to issue a new driver license. These
costs include mailing and printing charges, as well as paying staff to process
the applications and to administer the written and drive tests. Given that
about 850,000 people apply annually for a driver license, it costs DMV about
$57 million a year in direct costs to issue original driver licenses. This
cost is only partially offset by $20 million in license fee revenues,
resulting in net costs (over revenue) of approximately $37 million
annually.

Opportunities Exist to Improve Testing. Our review finds that
given the costs of certain equipment, the logistics of serving hundreds of thousands
of customers, and the need to safeguard the integrity of the process and
prevent fraud, the department's procedures in processing driver license
applications are warranted. For example, for logistical reasons multiple staff
members are needed to process the application, verify legal documentation, and
take the customer's photograph and thumbprint. However, we find that there are
a number of opportunities to improve the process, particularly in terms of the
written and drive tests, as discussed below.

Written Test Marked by High Failure, Retest Rates; Recommend Changes
to Improve Learning of Traffic Laws, Reduce Costs. Currently, if an
applicant fails the written test, he/she can retake it two more times without
paying another $24 fee. Except for minors, there is no minimum waiting period
before the applicant can retake the test. This retesting policy contributes to
the heavy workload the department faces. The DMV estimates that it spends over
$11 million annually to correct millions of written tests (including tests
for original and renewal licenses).

According to the department, the success rate for the written test is about
50 percent. A key reason for failure among examinees is that they did not
study enough beforehand. In fact, many examinees do not obtain and review the
80-plus-page book until the day they visit a field office to apply for a driver
license.

Our review finds that another group of examinees do not study the handbook
at all. Currently, most examinees are given back their corrected tests. Some
examinees take advantage of this policy by obtaining corrected copies of the
test from friends or family and committing to memory the answers. In addition,
as there are multiple versions of the test (ten in English, but only five in
Spanish, and three in the other foreign languages), some examinees take and
retake the test (sometimes in the same day) until they get a version that they
have seen before. Of course, these practices defeat the purpose of the test,
which is to ensure drivers' knowledge of traffic laws in order to promote road
safety. It also increases staff time to administer retests, and causes
additional congestion in the field offices.

By encouraging more studying, and discouraging strategies such as "exam
shopping," DMV can reduce the number of written test retakes—thereby
reducing costs—as well as improving the exam's integrity. Our review shows that
there are a number of actions DMV can take administratively to that end. We
recommend that the department report to the Legislature at budget hearings on
the feasibility and fiscal impact (cost and savings) of implementing the
following actions as well as other actions it is considering:

Make driver handbooks more
available by placing them in public places (libraries, community centers,
post offices, et cetera).

Increase the number of
versions of written tests in each language to ten in order to reduce the
incidence of exam shopping.

Retain all written tests
after sharing the results with the applicant. Some field offices already
have an internal policy of not returning written tests in foreign
languages other than Spanish.

Require a minimum waiting
period for all applicants before they can retake the test. This would encourage
examinees to take more time to study.

Rewrite the Spanish language
handbook and written tests to make them more accessible to applicants. The
current material is written in the formal "Castilian" dialect,
which makes it difficult for some examinees to understand some of the
vocabulary.

Provide the test on
"touch screen" computers, such as those used in North Carolina
and Wisconsin. This option would allow DMV to free up staff
from correcting tests and reassign them to other activities, reduce paper
waste, and eliminate the problem of cheating and "test sharing."

Create Incentive to Pass Drive Test; Recommend Higher Fee for Retests.
Of the approximately 1.1 million drive tests given annually by
DMV, about 33 percent result in a failing score. The primary reason why
applicants fail the road test is that they did not spend enough, if any, time
practicing their driving skills. Current law allows applicants to take up to
three drive tests before they have to reapply and pay another $24 fee. The
department charges a nominal $5 fee for each drive retest. We think that a
higher fee would be more effective in encouraging applicants to practice more
before taking the drive test, thereby reducing the need for retesting. In
addition, a higher fee for each drive retest would offset a larger portion of
the $32 in direct costs that DMV incurs to administer each drive test.
Accordingly, we recommend the enactment of legislation to increase the retest
fee to encourage applicants to practice more and to more fully cover costs. A
$15 retest fee (an increase of $10), for example, would generate about
$5 million in revenue.

Reduce Drive Test No-Shows; Recommend New Fee. As stated
earlier, drive test examinees must schedule an appointment for a drive test.
Department staff arrange for a date and time that is convenient for the
applicant, subject to availability by a drive test examiner. However, our
review finds that there is a considerably high no-show rate among examinees.
While DMV does not compile records on the incidence of drive test no-shows,
field office staff suggests that about 20 percent of appointments (over
200,000 annually statewide) are not kept by applicants. No-shows reduce the
efficiency and productivity of drive test examiners as they must wait for applicants
who never appear, and make unavailable a slot that another applicant might have
filled. We recommend the enactment of legislation to impose a new fee on
applicants who fail to cancel their drive test appointments ahead of time. In
so doing, DMV might be able to reduce the incidence of no-shows, as well as
collect additional revenue from those whose behavior is not changed by such a
fee.

Recommend Pilot Project on Out-Sourcing Drive Tests as Way to Improve
Customer Service, Reduce Costs. Under current law, third parties such
as licensed privately owned driving schools and public high schools are
authorized to provide driving classes (in the classroom and on the road) to
individuals seeking a noncommercial driver license. Only trained DMV staff are
authorized to conduct the actual drive tests. (The DMV allows certified
companies to test their own drivers for a commercial license.) With staffing
cutbacks due to hiring freezes and position abolishment pursuant to Control
Section 4.10 and Executive Order D-71-03, wait times for drive test
appointments average about one month long.

A potential solution to reduce the long wait time for customers would be to
authorize third parties to conduct drive tests, similar to what is done in
other states such as Colorado and Michigan. In Colorado, residents can choose
either to schedule a test with a DMV examiner, or, for faster service, to pay a
third party tester directly for the cost of the test. In Michigan, all drive
tests are given by third parties, which are bonded and regularly monitored by
the state. In order to evaluate the workability of using third party testers
for the drive test, we recommend the enactment of legislation that directs DMV
to pilot test third-party testing at select field offices for a period of time,
such as two years, and to report to the Legislature on the pros and cons and
cost implications of implementing the project statewide.

While the majority of motorists are eligible to renew their driver
licenses by mail, a large number of them opt instead to renew in person. In so
doing, these customers contribute to congestion in the field offices, and
significantly increase costs to the department. We recommend the department
report to the Legislature at budget hearings on ways of reducing unnecessary
in-person renewal visits. We further recommend the enactment of legislation to
allow the Department of Motor Vehicles to impose new fees on photos and
temporary licenses under certain circumstances.

The DMV renews about 4.7 million driver licenses annually.
Approximately 40 percent of renewal customers (about 1.9 million) are
required by DMV to visit a field office to renew their driver license in person
for a number of reasons. For example, they may have received multiple traffic
tickets during the previous renewal period. Renewal customers who will be over
age 69 on the license expiration date, and those with certain medical
conditions, must also renew in person. These customers are often required to
take a written test, and in some cases, may be required to take a drive test as
well. License holders who were eligible to renew by mail the previous two
five-year periods are also required to visit a field office to take an updated
photo and eye exam.

Many Renew Driver License in Person Instead of by Mail, Increasing
Office Congestion and Costs. The remaining 60 percent of renewal
customers are eligible to renew by mail. However, DMV estimates that of the
2.8 million applicants who are eligible to do so, about 750,000
(27 percent) opt instead to renew in person. Reasons that these customers
cite for their field office visit include:

Unhappy with the current
driver license photo and wish for a replacement.

Want to pay with cash.

Prefer in-person visits to
the mail system.

Did not receive a renewal
form because DMV mailed it to an old address.

Need for a temporary license
because missed renewal deadline and license expired.

Regardless of the reason, by renewing in person rather than by mail, this
group of applicants increases wait times for customers who have no option but
to conduct their business in-person. In-person license renewals also increase
the department's costs significantly. Specifically, the department estimates
that it costs about $3 to renew a driver license by mail, but about $18 for an
in-person renewal. This difference is due, in part, to the different way the
department processes a mailed-in renewal versus an in-person renewal.
Currently, for renewals by mail, staff at headquarters simply process the
renewal notice and mail out a new driver license using the applicants' photo on
file. In contrast, the department requires all in-person renewal
customers—including those who are eligible to renew by mail—to take a new
photograph and vision test and to submit another thumbprint. As a result, the
750,000 customers who renew in person add about $11 million in additional
costs to DMV.

Recommend Measures to Reduce In-Person Renewals. As in the
case of new driver license issuance, our review shows that there are a number
of administrative actions which DMV can take to encourage customers to renew
their driver license by mail. We recommend that DMV report at budget hearings
on the feasibility and fiscal effect (cost and savings) of the following
actions as well as other actions that it is considering:

Installing "express
boxes" for driver license renewal and directing customers who appear
in-person at field offices to drop off renewal applications instead of
waiting in line. (Currently, express boxes are already in use for vehicle
registration renewal purposes.)

Advising customers who prefer
to pay with cash to use a check or money order instead (and to use the
express box) in order to avoid a substantial wait time.

No longer require a new
photo, thumbprint, and vision test from applicants who are eligible to
renew by mail but who insist on renewing in person. This would avoid the
higher cost of renewing these licenses as well as reduce wait times of
customers.

Linking DMV's vehicle
registration and driver license databases so that a change of address
reflected in one system is automatically updated in the other. Because
vehicle registrations are renewed annually, that database is more
up-to-date than the driver license database. Linking the two systems would
significantly reduce the incidence of DMV mailing
renewal forms to an incorrect address. However, it would likely involve
significant one-time costs for the department to link the two databases.

In addition, to defray some of the additional cost imposed by in-person
renewals and to encourage prompt driver license renewal, we recommend the
enactment of legislation to authorize DMV to charge a fee (1) to customers that
are eligible to renew by mail who want to take a new photo and (2) for a
temporary license in cases where a licensee failed to renew on time.